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Rating Action:

Moody's takes rating action on 13 PTCs issued by Indian ABS transactions

06 May 2020
NOTE: On May 11, 2020, the List of Affected Credit Ratings accessible via hyperlink from this press release was corrected to change the Primary Methodologies date to March 2019 for Shri Trust U 2018, Platinum Trust December 2017, Shri Trust W 2018, Platinum Trust February 2018, Platinum Trust June 2018, Shri Trust X 2019, Platinum Trust September 2018, Platinum Trust December 2018, Platinum Trust February 2019, and Shri Trust AA 2019; and to July 2019 for Platinum Trust February 2018 - Tranche II and Platinum Trust June 2018 - Tranche II.

Singapore, May 06, 2020 -- Moody's Investors Service ("Moody's") has maintained on review for downgrade the ratings of six Pass Through Certificates (PTCs) and confirmed the ratings of seven PTCs issued by 13 Indian asset-backed securities (ABS) transactions.

Today's rating action concludes the review of 13 PTCs that were placed on review for downgrade on 24 December, 2019 due to the risk of payment default upon the bankruptcy of the sponsor. Please refer to this rating action on 24 December, 2019 for more information: https://www.moodys.com/research/Moodys-places-PTCs-from-four-Indian-ABS-sponsors-on-review--PR_415523.

Moody's notes that 10 of the 13 ratings considered in today's action were also subject to a review for downgrade on 1 April, 2020 because of the increased risk of loan performance deterioration and reduced loan collections caused by the lockdown in India and the payment moratorium for term loans announced by the Reserve Bank of India (RBI) in late March. Please refer to this rating action on 1 April, 2020 for more information: https://www.moodys.com/research/Moodys-maintains-19-PTCs-under-review-for-downgrade-places-two--PR_421549.

Today's rating action also concludes the April review for downgrade for four PTCs issued by Sundaram Finance Limited.

Moody's maintains the remaining six PTCs ratings on review for downgrade due to increased risk of loan performance deterioration and reduced loan collections caused by the ongoing lockdown and payment moratorium for term loans in India.

Moody's understands from the sponsors that they are planning to amend the PTC payment schedule and the use of the first and second loss credit facilities so that the temporary drop in loan collections caused by loan payment moratorium will not cause an event of default under the terms of the PTC. During the review period, we will monitor loan performance and possible impact on the cash reserve of the PTCs. In case a transaction restructuring takes place, we will evaluate the updated transaction structure.

The 13 ABS transactions are issued by two Indian non-bank financial institutions (NBFIs).

These transactions are backed by static pools of either commercial vehicles and passenger vehicle loans or by Loan-Against-Property loans.

The complete list of rating actions is as follows:

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL424152 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL424152 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

Principal Methodologies

Platinum Trust transactions sponsored by Cholamandalam Investment and Finance Co Ltd

For the nine Platinum trusts, we have concluded the December 2019's review for downgrade. The risk of payment default upon the bankruptcy of the sponsor is sufficiently mitigated for the nine trusts. We have confirmed the rating of three PTCs and maintained on review for downgrade the rating of six PTCs due to risks related to the ongoing lockdown and payment moratorium for term loans in India. Today's rating action is based on the draft amendment to the transaction documents that allows the trustee to draw on the Second Loss Credit Facility (SLCF) when the FLCF is not accessible for any reason. The SLCF is in the form of a bank guarantee provided to the trust by a third party bank. This would ensure the trustee will be able to access the SLCF to make timely payments on the PTCs. Sponsor and investor have confirmed verbally that the amendment will be executed promptly once the lockdown measures in India allow it. We consider that the likelihood of the amendment to be executed in the coming weeks is high and, as such, we have considered the upcoming amendment in our analysis.

Shri Trust transactions sponsored by Sundaram Finance Limited

Today's rating confirmation reflects the amendments to the terms of the PTCs effective since the April 2020 payout, in particular the change in the payment structure from Timely Interest and Timely Principal (TITP) to Timely Interest and Ultimate Principal (TIUP). For each PTC, the transaction amendments were approved by the investor. Under the revised structure, interests on the PTCs is still due on a timely basis. If collections are insufficient to meet the monthly interest payment, including during the moratorium period, the trustee will draw on the first and second credit facilities to cover any shortfalls. Principal payment on the PTCs is now made on a pass-through basis subject to loan collections received in a given period. The credit facilities cannot be used to cover principal collection shortfalls, except on the final maturity date of the PTCs. The final maturity of each PTC has been extended by three months to match the extended repayment schedule of the underlying loans because of the RBI moratorium.

From a liquidity perspective, the updated transaction structures are more resilient to any cash flow disruptions caused by reduced collections linked to the ongoing lockdown and loan payment moratorium in India. The four Shri Trust transactions now have enough liquidity to cover over 12 months in interest payments assuming no collections over the coming 12 months.

Additionally, we have concluded the December review linked to the risk of payment default upon the bankruptcy of the sponsor. The current PTC ratings are close to the sponsor's credit quality, such that no further rating action is warranted. Currently, Shri trust transactions' credit enhancement is in the form of cash collateral from the FLCF only and the bank account holding the FLCF is in the name of the sponsor. However, we note that the sponsor and the investor have signed an agreement stipulating that fixed deposits held in the name of the sponsor will be backed by a separate bank guarantee.

This rating action has also taken into consideration the increased likelihood of a deterioration in the performance of the underlying commercial vehicle auto loans because of the expected contraction in Indian economic activity in 2020 due to the coronavirus outbreak, and the increase level of credit enhancement available to the PTCs which ranges from 13% to 28%. We have considered stress scenarios with a 50% and 100% increase in expected losses on the underlying loans to evaluate the resiliency of the ratings amid the uncertainty surrounding the pool's performance. The rating sensitivity in these stress scenarios is either null or limited.

Our analysis has considered the effect of the coronavirus outbreak on the Indian economy as well as the effects that the announced government measures, put in place to contain the virus, will have on the performance of the commercial and passenger vehicle loans and Loan-Against-Property loans. The contraction in economic activity in the second quarter will be severe and the overall recovery in the second half of the year will be gradual. However, there are significant downside risks to our forecasts in the event that the pandemic is not contained, and lockdowns have to be reinstated. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

Factors that would lead to an upgrade or downgrade of the ratings:

Factors that would lead to a downgrade of the ratings include a deterioration in credit quality of the sponsor, a deterioration in loan portfolio performance, a substantial decrease in collections, a substantial decrease in available credit enhancement, and potential hindrances to the truste's access to the cash reserves.

Factors that would lead to an upgrade of the ratings include an improvement in credit quality of the sponsor, an improvement in loan portfolio performance, and a significant build-up in credit enhancement available to the PTCs.

REGULATORY DISCLOSURES

The List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL424152 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

Releasing Office

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

Moody's either did not receive or take into account one or more third-party due diligence assessment(s) regarding the underlying assets or financial instruments (the "Due Diligence Assessment(s)") in this credit rating action.

The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody's. While Moody's uses Due Diligence Assessment(s) only to the extent that Moody's believes them to be reliable for purposes of the intended use, Moody's does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rated entity has not informed Moody's whether the issuer is publicly disclosing all relevant information about the product.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Surbhi Khandelwal
Analyst
Structured Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Marie Lam
Associate Managing Director
Structured Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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